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TMI Blog1984 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether, on the facts and in the circumstances of the case, and also in view of the eligibility of the assessee to claim deduction for the provision of gratuity under the Kerala Industrial Employees' Payment of Gratuity Ordinance, 1969, for the assessment year 1970-71, the assessee is entitled to claim in the assessment year 1972-73 deduction of gratuity relatable to the earlier years' services of employees on the basis of the voluntary scheme for gratuity created by the assessee by agreement with the employees? " The first question has been referred at the instance of the assessee and the second at the instance of the Revenue. The assessee is a registered firm engaged in the manufacture and sale of plywood. It follows the mercantile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment created by the assessee by agreement with the workmen. The Appellate Assistant Commissioner would consider the evidence produced and if he finds that there was no voluntary scheme proved as a fact, allow (disallow ?) the deduction. If no scheme is provided, the provision of Rs. 1,75,303 on account of the earlier years would not be allowable. We, therefore, remit the case back to the Appellate Assistant Commissioner for examining the case as above and pass orders according to law. " (emphasis supplied). The matter was, therefore, reconsidered by the AAC. He held by his order dated August 22, 1973, that a scheme did exist in terms of which the assessee was entitled to provide for the total sum of Rs. 1,91,385 as claimed by it. Again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal. Having found that the whole question was open for its consideration, this is what the Tribunal held : " 5. .. ... The assessee is an employer governed by the provisions of the Kerala Industrial Employees' Payment of Gratuity Act, 1970, which came into force on February 18, 1970. So, according to the judgment of the Kerala High Court, the assessee is all owned to claim the provision as deduction. But in determining the quantum of provision allowable as deduction the past services of the employees could be taken into the computation only in the first year of liability (that is, for assessment year 1970-71, accounting year April 1, 1969, to March 31, 1970, because the liability was first fastened on the assessee on February 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant accounting year. This court said that the liability should be valued for particular accounting year by ascertaining the present value of the contingent liability which arose during the accounting period on actuarial principles. In L. J. Patel and Company v. Commissioner of Income-tax [1974] 97 ITR 152, this court held that the liability that had accrued in an earlier year could not be taken into account for computing the income of a subsequent year. Applying this principle, the arrears of the earlier years towards gratuity cannot be taken into account in computing the income of the subsequent accounting period. The assessee having adopted the mercantile system of accounting, it is entitled to deduct from the profits and gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Both the enactments confer power upon the appropriate Government (the State Government) to grant exemption by a notification from the provisions of the Act. The section does not specifically say that the Government can exempt with retrospective effect. The notification dated October 7, 1977, does not in any case retrospectively grant exemption from the provisions of the Central Act. Section 5 of the State Act does not confer power upon the State Government to grant exemption otherwise than by a notification. We doubt whether the notification dated October 7, 1977, could, by means of a subsequent letter, be amended or improved upon. Whatever that be, there is no doubt that the letter dated March 30, 1978, purports to grant exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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